Taxes aren’t just a yearly task. For many businesses, staying compliant means tracking shifting thresholds, collecting the correct rates in real time, and keeping detailed records year-round. Online tax software has become the infrastructure that makes it all possible, and the global market for tax management software is forecast to grow from about $25 billion in 2025 to nearly $60 billion by 2034.

Below, we’ll discuss what online tax software is, why teams rely on it, how to choose the right one, and common issues to avoid.

What’s in this article?

• What is online tax software?
  
• Why do businesses use online tax software?
  
• What should businesses look for when choosing online tax software?
  
• Common challenges with online tax software and how to avoid them
  

What is online tax software?

Tax software helps businesses calculate what they owe in taxes and file their returns. It pulls in your financial data (from payment processors, accounting software, and bank accounts), calculates what you owe across different jurisdictions, and generates the filings or reports you need to stay compliant. It typically covers income tax, payroll taxes, sales tax, and value-added tax (VAT) or goods and services tax (GST), depending on where you sell. Because it’s a cloud-based solution, it’s always up-to-date and you can access it anywhere.

While online tax software doesn’t replace the judgment or expertise of a good accountant, it does give you more control and offers a quicker, less costly way to handle taxes. You still need to input accurate information, but the software does the math, tracks deadlines, and keeps everything in one place. Many businesses will let tax software handle recurring compliance and bring in an accountant when nuance or planning is needed.

Why do businesses use online tax software?

Manual tax processes break down under modern business conditions. Tax obligations are fragmented, and businesses now need to address ongoing transaction taxes, multiple thresholds, shifting digital goods regulations, and audit requirements that demand solid documentation. Online tax software gives businesses a practical way to do so without hiring personnel or slowing down. Here’s a closer look.

Replacing error-prone, manual workflows

The real value of automation is speed and consistency. Good tax software pulls financial data directly from solutions like Stripe or your accounting system, applies the correct tax rates based on location and exemption status, and tracks every step from calculations to filing.

That level of reliability is hard to replicate manually, especially when you’re operating across channels. Startups and small teams can’t afford to spend days prepping tax returns, and even larger finance teams are often under pressure to close books fast and reduce risk. Tax software helps teams shorten their monthly or quarterly close cycles, automate recurring filings (e.g., sales tax, VAT returns), and catch issues earlier through dashboards or alerts.

Managing taxes across multiple jurisdictions

Selling in more than one country or state means you’re likely subject to different tax rates, product classifications, and filing cadences. Tax software helps you automatically manage compliance in multiple jurisdictions, track thresholds such as economic nexus, and apply local rules (e.g., how food is taxed in New York vs. California). Without software, all these tasks become a full-time job. With an online system in place, you can scale without adding on an untenable compliance workload.

Stripe Tax, for example, can calculate and collect the correct tax at checkout across all US states and more than 100 countries by using real-time product and location data. That’s the level of coverage growing businesses need.

Preparing for an audit

Audits don’t always occur, but it’s worth being prepared. Tax software helps by storing transaction-level data, logging every calculation and user action, and generating reports that explain how a return was built.

If a jurisdiction questions your filings, you want more than an opaque total; you want a clear, time-stamped path back to every number. The right software helps you both file and defend your filings.

Adjusting tax rules for different revenue streams

Businesses often blend different business models. Your business might sell both subscriptions and products. Another venture might offer digital services, physical goods, and affiliate revenue, which are all taxed differently depending on location.

Tax software can handle that nuance. It recognizes how software-as-a-service (SaaS) is taxed in different countries, whether a product is tax-exempt for nonprofits, and when a fee needs to be split across jurisdictions. That flexibility gives you room to experiment with new revenue streams without constant second-guessing.

Syncing data across systems

Tax software pulls from and feeds into the rest of your financial infrastructure. For example, if you’re using Stripe for payments, each transaction already includes location and product data. Stripe Tax can use that to calculate the exact amount owed. The data then flows directly into your reporting and accounting systems. The data stays synced, which makes compliance and reconciliation easier and more reliable.

What should businesses look for when choosing online tax software?

The right tax software will fit both how your business operates now and how it’s likely to grow. Here’s what to look for in tax software.

Fast setup

Software that promises automation but takes weeks to configure isn’t useful. Instead, look for:

• Guided setup with real examples
  
• Direct integrations with your payment system, bank, and accounting platform
  
• Clear mapping for products and tax categories
  

If your team can’t get it up and running quickly, it’s probably not the right fit.

Integration with your existing systems

Your tax software should fit cleanly into your existing stack. That means:

• Pulling in transaction data automatically from Stripe or other tools
  
• Syncing with your accounting software to avoid manual imports
  
• Updating your general ledger with tax liabilities in real time
  

If the software can’t integrate easily, it will create new workflows instead of simplifying old ones. Stripe addresses this issue by capturing detailed, structured transaction data that tax software can pull from directly.

Balance of automation and control

You want a system that handles the routine work and knows when to get out of the way. It should:

• Automatically calculate tax rates based on location
  
• Alert you when tax laws change or thresholds are met
  
• Populate filings and forms with minimal input
  

Ensure your system also gives you the control you need. Can you override defaults? Can you apply custom tax rules, if needed? Can you preview how tax will be applied before something goes live? Too much automation without flexibility can lead to silent errors.

Proper scope of coverage

Some tools handle taxes for only one location, while others can manage sales tax, VAT, and GST in international filings. Be sure to check:

• Which jurisdictions are supported
  
• How frequently tax rates are updated
  
• Whether the tool handles mixed-product tax rules (e.g., a digital service bundled with physical goods)
  

If your business model includes international sales, subscriptions, or exempt goods, be especially cautious about the software’s coverage.

Audit readiness and reporting

Good tax software also helps you track everything that happens on your way to filing. Find a solution that offers:

• Transaction-level reporting with full calculation history
  
• Downloadable reports that match what your accountant or auditor will request
  
• Comprehensive logs of user activity and changes
  

These features can help you catch mistakes, verify your filings, and retrace your steps, if needed.

Scalability

Outgrowing a tool means your business has developed, but some platforms scale more gracefully than others. Before you commit to one, ask these questions:

• Can the software handle more jurisdictions, transactions, or business entities in the future?
  
• Does the pricing scale reasonably with usage?
  
• Can it support teams with multiple users, roles, and permissions?
  

Your tax process shouldn’t have to be rebuilt from scratch when you expand so choose a solution that can grow with you.

Strong support channels

When something breaks, what kind of help can you count on? Look for software that offers:

• Live support with real humans
  
• Clear documentation and error messages
  
• A support team that understands taxes, not just the software
  

You should have good support when you need it most: you don’t want to be waiting two days for an automated response when a filing deadline is tomorrow.

Common challenges with online tax software and how to avoid them

Common issues with tax software can happen and surprise your team. Here are some problems to watch for and how to address them.

Data gaps from bad integrations or broken imports

When the data flowing into your tax software is incomplete or wrong, it can offset everything downstream. This can lead to missing transactions on reports, totals that don’t match those of your accounting system or payment processor, or returns that include outdated numbers.

What to do

• Audit your integrations regularly. If you’re pulling in data from Stripe, your accounting software, or a storefront point-of-sale (POS) system, ensure it’s syncing completely.
  
• Reconcile often. Just comparing your tax software’s transaction count with that of the Stripe Dashboard can surface problems early.
  
• Assign a team member to own these checks. The software won’t always tell you when something’s wrong. You need to have a basic review process in place.
  

Misapplied tax rates and incorrect product categorization

Tax software usually asks you to define what you sell and uses that to apply the right rates. But if you assign products to the wrong tax category, miss exemptions (e.g., nonprofit customers, out-of-scope services), or forget to update rules after entering a new US state or country, the software won’t be able to fix those mistakes.

What to do

• Don’t assume the defaults are correct. Spend time mapping your products to the correct categories.
  
• Review how each state or country treats those categories. It’s not always intuitive.
  
• If you’re using Stripe Tax, verify that each product is configured correctly so that tax is calculated at checkout using the correct logic.
  

Overreliance on automation

It’s tempting to rely on the system entirely, especially when it’s working. But even great software needs oversight. Unsupervised software might assume nexus in too few places (because you didn’t update it), file returns based on outdated thresholds or rules, or not track manual overrides.

What to do

• Set calendar reminders to review your nexus footprint, particularly after busy seasons or an expansion.
  
• Preview your returns before you file. Many tools let you simulate what tax will be applied so you can spot any surprises.
  
• Keep documentation for overrides or edge cases, even if it’s just a shared doc with notes on why something was handled a certain way.
  

Broken workflows between disconnected systems

Tax software works best when it’s part of an integrated workflow. Problems occur when systems fall out of sync (e.g., a new product gets added in your catalog but not in your tax setup), rate changes in one system aren’t reflected in another, or your team isn’t sure who owns what.

What to do

• Choose software that integrates well with your payment provider and ledger. Stripe’s application programming interface (API), for example, provides consistent transaction data with tax information already included, which makes it easier for downstream systems to stay accurate.
  
• Keep a single source of truth for your financial records, and ensure your tax software reads from it.
  
• Define responsibilities across your team: who monitors data imports, who reviews filings, and who handles updates.
  

Poor permissions and lack of visibility

Sometimes the problem isn’t what the software does; it’s who’s allowed to use it. Issues can arise when there are too many people with admin access, when there’s no audit trail to understand who made an adjustment or filed a return, or when important updates (e.g., new nexus rules or exemptions) are made without proper review.

What to do

• Use permission controls to restrict access to important team members.
  
• Assure that your software supports audit logs and history tracking.
  
• Review who has access on a monthly basis and adjust controls as team responsibilities shift.